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Does “E” Pay? Environmental Performance and Acquisition Premiums

Naguib, Michael LU and Jusufovic, Kenan LU (2025) NEKN02 20251
Department of Economics
Abstract
This study investigates if firms with superior environmental performance receive higher acquisition premiums. While ESG factors have gained importance in corporate finance, the specific impact of the environmental factor on acquisition premiums, especially the role of cash deals and liquidity, remains unexplored. By using a sample of 345 deals made in Europe from 2004 to 2024, this study applies OLS and 2SLS regression models to estimate the relationship between target firms’ environmental performance and acquisition premiums. Interaction terms are used to examine if this relationship is moderated by deal financing methods, such as cash deals, as well as target firms’ liquidity. Some of the key control variables are firm size, leverage,... (More)
This study investigates if firms with superior environmental performance receive higher acquisition premiums. While ESG factors have gained importance in corporate finance, the specific impact of the environmental factor on acquisition premiums, especially the role of cash deals and liquidity, remains unexplored. By using a sample of 345 deals made in Europe from 2004 to 2024, this study applies OLS and 2SLS regression models to estimate the relationship between target firms’ environmental performance and acquisition premiums. Interaction terms are used to examine if this relationship is moderated by deal financing methods, such as cash deals, as well as target firms’ liquidity. Some of the key control variables are firm size, leverage, liquidity and other deal characteristics. Contrary to the theoretical expectations from stakeholder theory, signaling theory and overinvestment theory, the results show a negative relationship between environmental performance and acquisition premiums across our models. This effect appears to be weaker in more liquid firms in our robustness tests. Additionally, no evidence was found that the financing method significantly moderates this relationship. The study contributes to the ESG and M&A literature by offering empirical results within different time frames and an environmental focus. (Less)
Please use this url to cite or link to this publication:
author
Naguib, Michael LU and Jusufovic, Kenan LU
supervisor
organization
course
NEKN02 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
Environmental Performance, Acquisition Premium, Signaling Theory
language
English
id
9194644
date added to LUP
2025-09-12 10:43:53
date last changed
2025-09-12 10:43:53
@misc{9194644,
  abstract     = {{This study investigates if firms with superior environmental performance receive higher acquisition premiums. While ESG factors have gained importance in corporate finance, the specific impact of the environmental factor on acquisition premiums, especially the role of cash deals and liquidity, remains unexplored. By using a sample of 345 deals made in Europe from 2004 to 2024, this study applies OLS and 2SLS regression models to estimate the relationship between target firms’ environmental performance and acquisition premiums. Interaction terms are used to examine if this relationship is moderated by deal financing methods, such as cash deals, as well as target firms’ liquidity. Some of the key control variables are firm size, leverage, liquidity and other deal characteristics. Contrary to the theoretical expectations from stakeholder theory, signaling theory and overinvestment theory, the results show a negative relationship between environmental performance and acquisition premiums across our models. This effect appears to be weaker in more liquid firms in our robustness tests. Additionally, no evidence was found that the financing method significantly moderates this relationship. The study contributes to the ESG and M&A literature by offering empirical results within different time frames and an environmental focus.}},
  author       = {{Naguib, Michael and Jusufovic, Kenan}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Does “E” Pay? Environmental Performance and Acquisition Premiums}},
  year         = {{2025}},
}